MARKET WATCH: Optimistic forecast pushes up energy prices

HOUSTON, June 5 -- Energy prices bounced back June 4 as analysts with the Goldman Sachs Group Inc. raised their 2009 crude price forecast to $85/bbl from $65/bbl previously, with the possibility of approaching $100/bbl by the end of 2010.

The front-month crude contract touched $69.60/bbl—a 7-month high—in intraday trading prior to a small pullback. Natural gas also advanced slightly. Prices for both commodities were up in early trading June 5.

Analysts in the Houston office of Raymond James & Associates Inc. said, “Overall economic optimism is running rampant,” partly fueled by a Labor Department report of a drop in jobless claims after weeks of record highs. Initial clams for unemployment benefits declined 15,000 to 6.74 million in the week ended May 23. However, Raymond James analysts said a June 5 report for all of May is expected to show the highest unemployment in 26 years.

Olivier Jakob at Petromatrix, Zug, Switzerland, said, “Bears have shown that they have a weak hand, but Bulls will now have to show that they are strong enough to go through the resistance of $70/bbl.”

In New Orleans at Pritchard Capital Partners LLC, analysts said, “If crude does not break $70[/bbl], the momentum players may lose interest. However, strength in oil and most commodities will most likely be dictated by the direction of the US dollar and US government bond yields.”

At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts said, “For front month prices to continue to rise, traders will need to be prepared either to elevate the whole forward price curve, which would seem to be premature given the extent of [the Organization of Petroleum Exporting Countries’] spare capacity, or to accept a further flattening of the forward curve, which would accelerate the movement ashore of oil from floating storage. This in turn would show up in onland stocks and weaken market sentiment.”

They said, “This now seems to be unfolding in the market, with $70/bbl possibly a short term ceiling to oil prices until all oil in floating storage has been brought ashore. Moreover, a downward correction cannot be ruled out especially given the speculative length. However, crude may continue to trade higher with equities. All outcomes are possible in a market driven by others’ perceptions of the future.”

KBC analysts added, “It seems that OPEC cohesion is weakening with May output rising to 28.2 million b/d and compliance with agreed cutbacks slipping to 75%. But the surge in oil prices has spared OPEC the difficult task of either seeking to boost compliance or making a further cut that might have been met by some disbelief in the oil market.”

Gas marketNatural gas moved closer to $4/MMbcf after shrugging off the negative storage report on June 4 (OGJ Online, June 4, 2009). “Price action continues to reinforce the possibility that the $3.50/Mcf level may represent a floor in natural gas,” said Pritchard Capital analysts.

Jakob sees another gas crisis brewing in Europe. “Ukraine has until June 7 to pay Gazprom for its May supplies, but the payment does seem problematic as Ukraine is still looking for a bank loan to pay for it.”

Russia has threatened to stop gas transit to Europe at the end of June or in early July if Ukraine does not make payment. That in turn “may mean less LNG will make its way to US shores in the coming months,” said Pritchard Capital analysts. Meanwhile, they expect US drilling will continue to decline, which “will ultimately hasten a recovery in natural gas prices.”

Energy pricesThe July contract for benchmark US light, sweet crudes rebounded by $2.69 to $68.81/bbl June 4 on the New York Mercantile Exchange. The Aug. contract regained $2.60 to $69.69/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $2.69 to $68.81/bbl. Heating oil for July advanced 4.56¢ to $1.78/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month was up 6.05¢ to $1.96/gal.

The July natural gas contract increased 4.4¢ to $3.81/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was unchanged at $3.77/MMbtu.

In London, the July IPE contract for North Sea Brent crude gained $2.83 to $68.71/bbl. June gas oil was up $11.50 to $554.25/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 60¢ to $67.01/bbl on June 4.